Final minutes of the 1st meeting of the task force on goods sent abroad for processing
Luxembourg, 8 November 2011
I. Opening
The Chairman Mr Francis Malherbe opened the meeting and welcomed the participants.
II. Adoption of the agenda
The agenda was adopted by the participants.
III. PRESENTATION OF THE ISSUE BY EUROSTAT
The Chairman presented the mandate of the Task Force (see document "Annex 2_Mandate Task Force Goods sent abroad for processing") and summarized the main objectives: studying the main consequences of the implementation of the new treatment of goods sent abroad in ESA 2010; identifying the need for new data sources; promoting the exchange of experiences and proposing some practical solutions to the main difficulties encountered. In addition, the Task Force will examine the links of the issue of goods sent abroad for processing with quasi-transit trade, global manufacturing and merchanting. The links between national accounts and balance of payments will be addressed.
IV. PRESENTATIONS BY NSOS
The presentations made by Member States focussed on identifying the practical difficulties encountered by the countries in the implementation of the new rules.
Italy
Mr Ludovico Bracci (ISTAT) summarized that according to ESA95 goods for processing must be recorded in imports and exports of goods although no change of ownership occurs (par. 3.133c). Under this treatment imports and exports of goods can be estimated using international trade statistics that measure the physical movements of goods across the borders regardless of the change of ownership. However, this assumption is not consistent with structural business statistics, where only the net service of processing is recorded. In order to reconcile the two sources, ISTAT is running a net and gross system of supply-use-tables. In the net system, estimated only for internal purposes, only the processing fees paid to foreign processors and received by foreign contractors are registered. In the gross system adjustments are made to the net system increasing the value of production (by the value of exports of goods for processing) and intermediate consumption (by the value of imports for processing). The gross system is consistent with the requirements of ESA95 and BPM5.
The source for estimating the processing fees paid and received is represented by the data of foreign trade statistics broken down by the nature of the transaction (Annex III of Commission Regulation n. 113/2010 for Extra-EU and n. 96/2010 for EU). Processing fees paid (received) are estimated on the basis of the difference between “imports (exports) following processing under contract” (nature code 5) and “exports (imports) with a view to processing under contract” (nature code 4).
With the application of ESA 2010 from year 2014 onwards it is necessary to improve the quality of these data for the compilation of national accounts and balance of payments statistics in order to estimate the flows of services. Close cooperation with the Bank of Italy is necessary to estimate these flows.
In fact, the breakdown of imports and exports of goods by nature of the transaction can be biased determining a possible underestimation of processing, in particular on the inward side. A national operator can temporarily send goods abroad for processing only after the authorization of the competent custom. There is an administrative burden for the enterprises to apply these particular customs procedures and, on the other side, the use of inward/outward processing under customs control is not compulsory for enterprises engaged in processing. Firms can decide to not declare their transactions as “goods for processing", but rather as "imports-exports".
Analysis of data broken down by "nature of transaction" shows that Italy is more a processor of goods (inward processing) than a country exporting goods for processing. For year 2008, the values for imports of goods for processing were EUR 8.5 billion and for exports of goods after processing EUR 10.1 billion. The values for exports of goods for processing were EUR 3.7 billion and for imports of goods after processing EUR 4.5 billion. These results seem to be in contradiction to what could be expected for the Italian economy, characterized by increasing processes of fragmentation of production chains and trade in intermediate goods and probably more involved in outwards processing.
Processing fees due to inward processing occur in some sectors of the Italian economy. A typical example is the pharmaceutical industry, but this phenomenon occurs in a large extent also in chemistry and other sectors where there is only the movement of products between plants, but across national borders to the processing and back without a change of ownership. These flows seem correct for the import side, but underestimated for the export side.
One solution to improve the quality of the estimates is to add a question on this item in SBS, in which currently information on intermediate consumption and revenues for processing were collected. The enterprises should be asked for a split of the processing fees into internal and external flows to have a measure for processing fees per transaction for inward and outward processing.
Germany
Mr Simon Lohner (Deutsche Bundesbank) presented a power point-presentation on the treatment of goods for processing. The movement from the sending country to the processing country is recorded in BOP as trade in goods, sub-item goods for processing. The purchases of the goods sent abroad and the processing fee are not part of BOP. The re-import to the sending country is again part of trade in goods under sub-item goods for processing.
In the case that the goods after being processed are sold from the processing country to residents of a third country, the export is re-routed. It is assumed that the goods come back to the sending country. These transactions are recorded under goods for processing.
In a second step they are exported to the third country and recorded under sub-item general merchandise in the trade in goods.
The representative of DE explained that this current practice is not treated in a methodological correct way with regard to the IMF Manual. However, this compilation is in line with the recommendations of the Eurostat Task Force II. Data is compiled from the trade in goods statistics/good for processing of the foreign trade statistics. In the Intrastat/Extrastat report information on the "nature of transaction" is asked and due to the code goods for processing can be identified. The sale abroad (after processing) is part of the direct reporting in the BOP statistics.
Under the current scheme, exports of goods for processing and imports of goods after processing are recorded under 'goods for processing', in the future these exports/imports are no longer recorded. Purchases abroad of additional material are not recorded under the current scheme, but under the BPM6 as 'trade in goods/general merchandise'. Exports of 'sales of goods after processing abroad' are rerouted as imports and shown under 'trade in goods – processing' abroad with the imputation that the goods are subsequently exported, recorded under 'trade in goods – general merchandise'. Under the new requirements these transactions will be recorded as 'trade in goods/general merchandise'. The processing fee, which is under the current scheme not recorded, will be recorded under the BPM6 as service.
Belgium
A power point-presentation was provided by Mr Ghislain Poullet (Banque Nationale de Belgique). The Task Force was informed that Belgium follows the 'nature of transaction codes' which should allow identifying goods for processing included in foreign trade statistics. The trade statistics records both incoming and outgoing flows as imports and exports, whereas the collecting system based on payments only shows the processing fees as balance. According to the data provided in the power point-presentation, Belgian foreign trade statistics shows a positive balance (value of exports before processing larger than the value of imports after processing) in the community concept for the recent years. It is possible that part of the goods exported for processing from Belgium towards an non-Member State are at the end re-imported to another Member State. The resident enterprises are questionned about this possibility and the data in national concept are corrected. Because there are many enterprises that do not consider processing as a part of the trade of goods and thus don’t declare spontaneously to Intrastat, we added a question on the processing fee’s not declared to Intrastat in the balance of payment survey. These fees are added in the balance of payment and thus in the national accounts but not in the FTS.
France
Ms Myriam Broin (INSEE) presented a power point-presentation: INSEE introduced in 2009 two statistical surveys: the Annual Production Survey (Enquête Annuelle de Production: EAP) in manufacturing, and the Annual Sectoral Survey (Enquête Sectorielle Annuelle: ESA) in the other sectors. Like the former annual enterprises surveys (enquête annuelles d'entreprise: EAE), the new surveys cover all enterprises whose workforce exceeds a given threshold, and a sample for the others. Respondents provide a breakdown of their sales by industry category, enabling the compiler to determine the sector to which they belong. In some sectors, specific information is asked: the type of customer in wholesale/retail trade and services, and the type of structures built in the construction industry. In manufacturing, enterprises have to record in a very detailed breakdown output by product.
A question in the Annual Production Survey (EAP) was designed to measure industrial services provided on the national territory. These activities are classified under the industry "manufacturing" and under products as "manufactured products". However, the questionnaires do not provide information on the relationship of resident units with non-resident units. Cases on outward processing and re-imports for consumption on the territory cannot be identified. Inward processing on the national territory on behalf of a non-resident unit and the subsequent re-exports cannot be identified.
The Balance of Payments department of Banque de France can provide a global evaluation of the processing fees. But these amounts are not limited to bilateral flows only, and there is no breakdown by product or industry. Confronting them to customs data by nature or transaction is difficult. For most cases, the value of the manufacturing services or the processing fee recorded according to BPM6 is not simply the difference of the value of goods before and after processing. Some reasons for such a difference may be the reliability of the customs value of goods as it may include profit margins or be subject to other factors of pricing in respect of intra-firm trade.
In the discussion that followed examples were discussed in which an oil refinery plant (the processor) – resident in the French economic territory – converts crude oil into petrol. That oil refinery was formerly a subsidiary of a resident unit, but it has been sold afterwards and it is now owned by a non-resident unit. However, as before, the crude oil is shipped in from abroad and the refined petroleum products delivered on the national territory to the resident unit which was the former owner of the oil refinery plant.
The discussion focussed on the question related to the ownership of the imported goods. A theorical analysis could have been to consider the oil refinery plant as a sub-contractor and subsidiary of a foreign parent. So the crude oil might have been considered as owned by this foreign parent company. In that theorical scheme, the oil refinery plant would have received processing fees from the non-resident parent company to compensate for operational costs and its activity is exports of services (related to petroleum).
The practical treatment is to consider that this kind of case does not fall under the strict definition of goods sent abroad for processing, which concerns bilateral exchanges only. The physical flows of crude oil remain considered as imports of goods on the national territory, in line with the customs statistics. The resident unit which formerly owned the refinery plant was formely classified as a refined petroleum producer; it is now classified in trade sector, selling refined oil products (merchandise) on the national territory. Their relationships take place on the national territory, and foreign trade statistics don’t need to be modified in that case.
Netherlands
Mr Leo Hiemstra (Statistics Netherlands) summarized the current international standards for the treatment of goods for processing. A power point-presentation was provided. According to BPM5, a gross recording is applied, and the balance between exports and imports of goods is considered as processing fee. The values for exports and imports are imputations rather than market transactions, e.g. goods sent abroad are not finished goods and they are in the middle of a production process.
Within the questionnaires on business statistics the respondents are asked to report amounts paid or received related to the sending or receiving of goods for processing. Firms declaring foreign trade on goods are asked whether the transaction concerns imports or exports for processing abroad. The representative of NL recognized the flows concerning processing abroad are very difficult to observe: the fact that goods often return in a different time period, the difficulty for enterprises to make a distinction between domestic processing and processing abroad. Valuation problems due to discrepancies caused by import tariffs and duties and transportation costs are other factors that make more difficult to quantify goods sent abroad.